I. GENERAL PROFILE
Area: 25,713 sq km
Population: 2,031,000 (2000)
Population density: 79 per sq km
Capital: Skopje

GDP (2000): n.a.
GDP (2000) per capita: n.a.
1999 GDP growth: 2,4%
Budget deficit as % of GDP: n.a.
CP Index Change (1999): -1.3%
Foreign debt: $ 1.436 bln

Government: Republic since 1991. Gained independence from Yugoslavia in 1991. Head of State: President Boris Trajkovski since 1999. Head of Government: Premier Ljubco Georgievski since 1998.

Over 65 per cent of the population are Eastern Orthodox FYROM and around 23 per cent are Muslim Albanians. There are also Muslim Turks and Serbian Orthodox minorities.

Roughly rectangular in shape, and bisected by the strategic Vardar Valley north-south communications route, FYROM (Former Yugoslav Republic) is landlocked, by Serbia to the north, Albania to the west, Greece to the south and Bulgaria to the east.

When the old Yugoslav system of economic planning ceased in 1991, so did the guaranteed markets and subventions from Belgrade to Skopje. This brought about a virtual collapse of the local industrial sector, which consisted mainly of metals, chemicals and textiles.
In the short term, the economic prospects of FYROM are closely tied to its political fortunes, and those of its neighbours. The resolution of the dispute with Greece and the cancelling of old Yugoslav debts initially opened up potential FYROM access to international financial aid from the IMF and the World Bank. However, since then, the neighbourhood's civil wars, instability in Albania and most recently the domestic conflict between the government and the Albanian nationalists have deterred foreign investments. The economic policy of the government is to develop a tourism industry as the best prospect for future growth, but this is now de facto on hold.

II. DEFENCE BUDGETS - OVERVIEW (1999-2001)

Defence/GDP proportion. According to the National Strategy for economic development of the Republic of FYROM for the period of 1998-2002, the Gross Domestic Product was expected to show an average annual growth rate of 5.1%. However, the unstable political situation has had a negative effect on the country's economic performance and the expected growth rates are now lower.
The plans of the government to decrease the defence/GDP proportion from 2,3% in 1998 to 2% in 2002 have been realised ahead the schedule.
Total defence expenditures were 2,12% of GDP in 2000, falling to 2% in 2001. The decrease is not that substantial as it represents only a 6% drop in spending. (See Chart 1).



Chart 1. Total defence expenditure as % of GDP (2000-2001)

Total defence expenditures. Regarding the defence budget, the 1998 intention of the FYROM government to raise the absolute volume of defence expenditures has not been achieved.
As Table 1 (and Chart 2) show, total spending will fall from $ 70,6 million in 2000 to $ 68,4 million in 2001. These figures differ drastically from the former estimates of the FYROM MOD which foreshadowed outlays of $ 84,4 mln and 89,9 mln in 2000 and 2001 respectively. This alone demonstrates the negative impact of the political dynamics over the economic development of the region.




Chart 2. Total defence expenditures (2000-2001)

Operating costs.Running costs are the biggest part of the defence resource allocation accounting for 71.89% and 72.75% of the total defence expenditures in 2000 and 2001 respectively. As Table 2 shows, the trend of the operating costs follows that of the defence budget. The ratio of personnel costs to operation and maintenance stands at 60:40 in both years (See Chart 3).


Chart 3. Structure of the operating costs (2000-2001)



Chart 4. Structure of the procurement and construction costs (2000-2001)

Procurement and construction costs. It is apparent from Table 2 their capital spending also follows the decrease of the total defence expenditures: $ 19,6 million in 2000 falling to $ 18,5 million in 2001. Within the category, procurement accounts for a higher fraction of total defence investments in 2001 than in 2000, while construction represents a lower one.

Research and development costs. Outlays for R&D amounted to only 0,3% and 0,2% of the total defence expenditure in 2000 and 2001 respectively.



Defence forces costs. FYROM's defence forces comprise Land forces, Air forces and Central support. According to Table 3 land forces consumed $ 47,6 million in 2000 and $ 46,2 million in 2001, or approximately 67% of the available resources. The air forces expenditure was $ 6,8 million in 2000, but only $ 2,6 million in 2001 less than 4% of the defence budget. Central support costs represent the remaining 25% of the 2001 defence budget, up from 7% in 2000. These trends are depicted in Chart 6.



III. ESTIMATED TRENDS OF DEFENCE EXPENDITURE 2001-2005

Defence/GDP proportion. According to the estimates of the FYROM Ministry of Defence, the defence/GDP proportion will increase slightly in 2002, when the government plans to spend about 2,4% of GDP on defence. The estimates show that the proportion will maintain its upward trend to 2005. (See Chart 7 here).


Chart 7. Defence/GDP proportion (2000-2001)

Development of the defence budget. As Table 3 and Chart 8 illustrate, the current structure of the defence budget will not change significantly in the next few years. The portions of the major components will stay relatively constant. The personnel costs will keep their leading position (37%), closely followed by the operations and maintenance costs (36%). Investments will take 27% of the defence budget.




Chart 8. Functional defence costs as percentage of the 1999-2005 defence budgets